In the past year, Israeli biomed companies have struggled to enter the Nasdaq in non-merger issues with SPAC, due to weak ties with investors in crossover funds, which have become dominant in recent years.

The problem of Israeli companies

Crossover investors create the bridge between private companies and the market, and in fact they give them the seal of approval needed by non-biomedical investors – both in terms of the quality of science of that company and in terms of its chances of success. In recent years, a life sciences offering that goes without a crossover investment that precedes it can hardly be successful.

On the other hand, biomed companies are discovering that capital needs are great already at the animal testing stage and have no choice but to go to the stock market to raise the large sums needed. “The private market cannot support this. Indeed, today its pharma industry is responsible for 40% of IPOs,” Dr. Pini Orbach, head of the pharma division at Arkin Holdings, explained to us in the past.

The disregard of American crossover funds by Israeli companies also in turn lowers the appetite of venture capitalists in the early stages of these companies. This trend prevents companies from meeting large sums even in their first rounds. This does not necessarily mean that Israeli companies are not of good quality, but that Crossover investors are generally unfamiliar with them, and so their entire value chain falls.

This trend creates a negative feedback loop. It ultimately affects the quality of companies, because if they fail to raise significant capital in the beginning, they have no chance of being built as competitive companies. These things are true for companies that are not in the field of digital healthcare – these can prove themselves very quickly and with much lower capital. As for the rest, if the current situation continues, the biomed industry in Israel could dry up. Under such conditions, there is no point in setting up ambitious companies of the kind that can make big breakthroughs but also owe large sums.

The way out of the mess

Recent moves may mark the solution to a tangle. A few weeks ago, the companies Clal Biotechnology, IBF and CBG of Vincent Chingwiz announced the raising of $ 126.5 million for the SPAC company “Cactus 1”. In a conversation with Globes, Clal Biotechnology’s CEO, Ofer Gonen, said that “it is no coincidence that we called it Cactus 1,” meaning that he hinted that if this activity was successful, more cacti might join it later.

The success of this move depends on two factors. First, success depends on Cactus finding a compelling company to merge with, so that SPAC investors will retain their investment within the company. And the second factor is the state of the spikes in general. In the last month this area has taken several blows, after it became clear that companies that merged into spas did not supply the goods. However, there are those who say that the market has gone through this pit and is starting to recover.

At the same time, shortly before the launch of Cactus 1, Arkin Holdings announced the raising of a $ 270 million Crossover fund, which it will invest in companies prior to the IPO. Arkin did not specifically state that it would invest in Israeli companies, but most of its investors are Israelis, and it does not appear that it should have a bias against local companies.

Gonen says he sees the possibility of a collaboration between the Arkin Foundation and Clal Biotechnology’s Spock. There is currently a shortage in Israel of groundbreaking companies that can really fit in to merge into SPAC at a value of $ 1 billion, and the hope is that if there is an Israeli crossover fund, it will be easier for these companies to build.

The role of the local capital market

Meanwhile, several companies still managed to merge – NRX, whose founders are American and it is now traded at a value of $ 544 million, about one-sixth of the record price attributed to it as part of the merger; Alpha Tao, whose technology looks exceptional, and in the SPAC to which it is supposed to merge, at a value of $ 1 billion, there is one Israeli investor, Valio Base; And Mick, which is expected to merge into a SPAC called Medtech Acquisition Corp at a value of $ 1 billion. Memic’s chairman, Maurice Pera, who has already sold a robotics company for hundreds of millions of dollars and serves as CEO of Insightec, is leading Memic to merge into SPAC for $ 2 billion.

But these are the exceptions to the rule. If a path is indeed created in which an exceptionally good Israeli company can receive an investment from an Israeli crossover fund and go to a dedicated SPAC for Israel, then funds interested in investing may also come to the game at an earlier stage. Perhaps funds like Arkin and Clal Biotechnology themselves will have a greater appetite for this type of investment, knowing they have a market outlet. of course, If the model succeeds, more Israeli funds will want to restore it, and the Americans may also stop disqualifying Israeli companies.

The local capital market also has a role to play in this case. It can help Israeli companies be built so that the Crossover Fund will want to invest in them, or be the outlet for companies that will receive investment from private funds, but in the end will not grow to be the right companies for the NASDAQ track.

The assumption that such a direct route will be created for Israeli companies to NASDAQ and that a local market will develop that can permanently produce quality companies is optimistic, and relevant provided that the basic market conditions remain as they are: an interest rate environment that will continue to reward the SPAC model; A seal of approval from Crossover investors, and the lack of additional barriers that will prevent Israeli companies in the field of drug development from rising up and prospering here.

By Editor

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